Havells: After A Dream Rally Of Around 29% In One Month---What's Next ?

Expect 350-400 only sustaining above 305-315;

Otherwise, sustaining below 283; it may gain fall to 274-256

CMP: 300

Sell around 305-310-315

TGT: 283-274*-256-235 (1-3M)

TSL> 322

Note: Consecutive closing above 322 for any reason, Havells can further rally to 350 zone in the near term, which is another strong supply zone and in that alternative scenario, sell positions may be reversed to wait for further selling/appropriate strategy around 350.

Havells is truly lighting up again after hitting recent low of around 235 in early November and since then rallied by almost 29% to 302 yesterday.

The massive rally may be fulled by factors like 7-th Pay Comm (expected to boost low ticket consumption along with affordable housing & electrical appliances); some uptick in industrial demand (better IIP data last month), change in domestic marketing policy of Havells (uniform dealer discounting instead of previous model of extra discount to large dealers/distributors), hope of GST (positive for Havells) and improving financial health of its EU based subsidiary (Sylvania).

There is also some market talk that Havells may take over rival Kei Industries at substantial premium of around 175 (??) to the current market price of around 115. This may provide monopoly to Havells in the electrical wire segment. Although, strong balance sheet may help Havells in this regard, CCI & other regulatory approvals may be a challenge, beside exorbitant premium (if the deal goes through around 50% premium as par market buzz !!).

There was also some news that Govt may withdraw subsidy on LED bulbs and give the same to some solar powered bulbs (negative for Havells). Yesterday City also sold also 61 laks shares of Havells for a part exit. 

Current TTM EPS of Havells is around 7.46 with consolidated BS Debt around Rs.296 cr (FY-15) and D/E ratio 0.16.

No doubt, Havells is a good company having excellent brands, strong distribution network with improving financial metrics. The stock already rallied to a great extent within a very short time digesting the above sets of positive news flow and considering the recent time & price action on technical chart, 305-315 area is a strong supply zone. Thus buy on dips around 274-256 on any correction may be better for portfolio investment, considering the favourable risk/reward ratio.

To be cont for more news & analytical inputs----

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